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Ed's Blog

In the last few days, the U.S. Federal Trade Commission (FTC) has filed lawsuits against the wireless company T-Mobile over cramming of "hundreds of millions of dollars" in junk charges on phone bills and the web seller Amazon over "millions of dollars in unauthorized in-app charges incurred by children." What's interesting is not that the companies are alleged to have broken the law, it's that they've refused to settle and forced the FTC into court.

In January, Apple settled similar charges to the Amazon case (New York Times January story). According to the Times story today, which was based on a press conference call with a senior FTC official, Jessica Rich, Director of the Bureau of Consumer Protection:

"In the conference call, agency officials said they could not comment on private negotiations with Amazon and why no settlement had been reached. But Ms. Rich said the F.T.C.’s goals in both the Apple and Amazon cases had been to seek full refunds and require informed consent. In the Amazon case, the agency is striving for an outcome “similar to the settlement with Apple,” Ms. Rich said.

The FTC explained the violations alleged in the Amazon lawsuit this way:

"Amazon.com, Inc. has billed parents and other account holders for millions of dollars in unauthorized in-app charges incurred by children, according to a Federal Trade Commission complaint filed today in federal court. The FTC’s lawsuit (pdf) seeks a court order requiring refunds to consumers for the unauthorized chargesand permanently banning the company from billing parents and other account holders for in-app charges without their consent. According to the complaint, Amazon keeps 30 percent of all in-app charges. Amazon offers many children’s apps in its appstore for download to mobile devices such as the Kindle Fire. In its complaint, the FTC alleges that Amazon violated the FTC Act by billing parents and other Amazon account holders for charges incurred by their children without the permission of the parent or other account holder. Amazon’s setup allowed children playing these kids’ games to spend unlimited amounts of money to pay for virtual items within the apps such as “coins,” “stars,” and “acorns” without parental involvement."

Meanwhile, last week the FTC filed a case against T-Mobile over the alleged cramming of junk charges for horoscope and other subscription products onto wireless bills. In its release, the FTC also explained that T-Mobile disguised the charges or lumped them into generic categories such as "premium services"" so they would not be obvious.

"The FTC alleges (pdf of complaint) that T-Mobile received anywhere from 35 to 40 percent of the total amount charged to consumers for subscriptions for content such as flirting tips, horoscope information or celebrity gossip that typically cost $9.99 per month. According to the FTC’s complaint, T-Mobile in some cases continued to bill its customers for these services offered by scammers years after becoming aware of signs that the charges were fraudulent."

Not only did T-Mobile refuse to settle, but John LeGere, the CEO of the company that likes to call itself the "Un-Carrier," penned a blog post attacking the agency's action:

"T-Mobile is fighting harder than any of the carriers to change the way the wireless industry operates, and we are disappointed that the FTC has chosen to file this action against the most pro-consumer company in the industry—rather than the real bad actors."

I've read the complaints and I think both companies have losing hands.

Increasingly, on Capitol Hill and in the courts, companies are relentlessly challenging the ability of government agencies to police markets and challenge corporate wrongdoing. In fact, the FTC is in the middle of a major lawsuit (it won the first round a few months ago (Adweek)) where a hotelier known as Wyndham is fighting the agency's authority to hold companies accountable for sloppy data security practices at all. Another firm, LabMD, has sued the FTC over that same issue: whether the agency can police corporate cybersecurity allegedly absent specific direction from Congress.